Weekly Binary Options market review December 17 - 21.

Price action was rather unexpected in the binary options market last week, as most of the financial instruments were vulnerable to monetary policy updates. Three major central banks held their meetings and interest rates decisions, publishing economic statements and forecasts. The Bank of Japan and the Bank of England did not cause any significant shifts in traders’ sentiment, while US Federal Reserve created a real turmoil, struggling to defend the rate hike decision which has been already priced in by the markets. Unexpected hawkishness by the Fed Chairman Jerome Powell forced traders to put-options for US stock indices which performed the worst week since the latest financial crisis in 2008. Binary options for the world’s reserve currency were initially trading in a put-mode across the board, which was rather predictable as traders and investors were expecting a more dovish Fed on Wednesday. However, the market’s reaction diverged the fact that the Federal Open Market Committee announced more tightening in the monetary policy next year, and the US dollar kept declining sharply versus Euro, Swiss Franc, British Pound and Japanese Yen, while it gained strength versus all of the high-yield currencies, Australian, New Zealand and Canadian dollars, as well as emerging markets assets. The main reason for such a shift in the currency market was in US equities which plunged, accelerating the brutal sell-off. An additional demand has also been seen in binary options for US Treasuries, as 10-year yields declined despite the expectations of more interest rates hikes in 2019. Moreover, the yield curve, which measures the relation of long-term 10-year securities versus short-term 2-year bonds, narrowed its surplus to the lowest rate in a decade, pointing to an upcoming recession in the United States.

As a result, all of the safe-haven assets were in demand for call options, including Gold, Japanese Yen and Swiss Franc. Gold surged on the demand for US Treasuries, breaking through $1255 per ounce. USD/JPY dropped to the lowest levels since June 2018: 111.00. The Bank of Japan was trying to fix the situation with verbal interventions right on the next day after the Fed’s rate decision and hawkish statement. However, that did not stop investors from buying put-options for Japanese Nikkei 225 benchmark, as well as USD/JPY. BoJ left the interest rates unchanged, announcing a longer period for the ultra-soft monetary policy which supposed to support weaker yen and lower financial conditions in Japan. Exporters were also vulnerable to the slowdown in the second largest world’s economy, GDP growth cut and global trade worries.

The Bank of England was totally predictable in their decision to leave the interest rates unchanged at historically low levels. All of the 9 voting members of the Monetary Policy Committee remained dovish on the economic perspective in the United Kingdom, as the Brexit uncertainty still weighs on investors’ sentiment and macroeconomic data keeps disappointing regulator's officials. Brexit vote in British Parliament has been postponed till mid-January, so there’s nothing good to expect for Sterling call-options buyers from that side of things. However, the US dollar was so weak last week that even GBP/USD ended the trading week with gains, despite the dovish BoE. The Pound was weaker versus Euro and Japanese yen though. Another big story was a further decline in oil prices in the binary options market last week. WTI Crude lost another 11% of its value, falling as low as $45 per barrel on consumption shortage, inventories and shale output rising in the United States and the inability of OPEC, Russia and Saudi Arabia to agree on a common solid position to reduce oil production and exports.

Monday started a comparatively quiet trading session in Asia due to the lack of any macroeconomic data. Some of the price action started in Europe as Inflation report was published. EU Consumer Price Index was in line with the expectations in November on monthly basis (-0.2%) while Core CPI declined faster than it was predicted (-0.3% versus -0.2%) on yearly calculations. That’s not a supportive factor for the single European currency in the light of more dovish Draghi during his ECB press conference last week. However, the demand for EUR/USD put-options was limited and call-options buyers dominated in the market, lifting the most heavy-weight currency pair towards 1.1350 resistance at the end of the day. Fundamentally, that divergence was explained as US dollar weakness amid traders buying put options before the FOMC meeting on Wednesday. NY Empire State Manufacturing Index showed a sharp decline in the industrial sector in the United States in December (10.9 versus 20.1 predicted). That news caused more pressure on the greenback. The Canadian dollar traded on the put-options side as the macroeconomic data was also weaker-than-expected: Foreign Securities Purchases fell in October to CAD3.98 billion from CAD7.76 billion previously, while economists were expecting CAD6.20 billion. WTI Crude oil also did not support the Loonie, as the black gold price was falling due to the lack of any positive news from OPEC.

Tuesday’s Asian trading session was focused on the Reserve Bank of Australia publishes its meeting minutes. Aussie traders were looking for an improvement in regulator’s rhetoric, however, the initial demand for AUD/USD call options was limited and the pair slipped back to the starting positions around 0.7180. German IFO Business Climate Index (101.0 versus 101.8 expected), Current Assessment (104.7 vs 104.9) and Business Expectations (97.3 vs 98.3) showed another wave of the slowdown in the largest European economy which was fundamentally negative for EUR/USD. Nevertheless, traders kept buying put options for the pair as the demand for the greenback was still weak. Building Permits (1.328M vs 1.259M) and Housing Starts (1.236M vs 1.225M) indicated to a slight improvement in the US real estate sector, however, those strong reports were ignored by binary options traders as equities kept falling. Manufacturing Sales declined in Canada (-0.1% vs 0.3%) adding more pressure on the Loonie, as traders were buying USD/CAD call options.

The extremely busy Wednesday started with important macroeconomic reports in New Zealand. Westpac Consumer Sentiment Index improved on a quarterly basis (109.1 compared to 103.5 in the second quarter) while GlobalDairyPrice Index declined (1.7% vs 2.2%). The mixed fundamental outlook was added by Current Account report which performed in a negative side for the Kiwi (NZD -10.54B vs -10.34B). NZD/USD started falling on strong demand for put options. That decline was accelerated later during the North American trading session with higher trading volume. Another crucial pack of data was released in Japan as the country was reporting trade balance updates in November. So, Exports Volume declined by 0.1% on a yearly basis while experts were forecasting much more optimistic figures of 1.8% growth compared to 8.2% expansion previously. That’s totally negative news for the export-oriented Japanese economy. Imports unexpectedly grew for 12.5% year-on-year while the market consensus was at 11.5% compared to 18.2% previously. As a result of those shifts, the trade balance report showed a much worse-than-expected reading of -737 billion yen while economists were predicting -600B decline. The adjusted trade balance was also in red with the final reading of -0.49 trillion yen in November. Binary options traders started to buy put options for USD/JPY on safe-haven flows. British Consumer Price Index came in line with investors’ expectations (2.3%) while the Producer Price Index unexpectedly jumped in November with both input and output components in green. Harmonized CPI excluding food and energy was published in positive territory as well (2.2% vs 2.3%), despite the oil prices decline. All of that data was positive for the Sterling and GBP/USD was trading in a call mode. American trading session started with Canadian inflation reports. CPI was slightly lower-than-expected (1.7% vs 1.8%) and Core CPI completely flat (1.5% y/y). Not much of the volatility was added during the Existing Home Sales report in the United States which was comparatively strong. Crude Oil Inventories came in with a negative result for the price of oil which accelerated its free fall on Wednesday. What happened next desires a separate description.

Binary option markets went crazy after the US Federal Reserve announced its interest rate decision, tightening the financial conditions for another 25 basis points. Although the market players were expecting for the fourth rate hike this year, US equities reacted with a bloodbath for call options buyers. The problem was related to the followed statement by FOMC, as the regulator decided to keep the quantitative tightening further, unwinding the balance sheet for 50 billion dollars in securities monthly. Moreover, the Fed chairman Jerome Powell insisted on more rate hikes next year, while the private sector and US politicians were pushing on him to stop tightening the monetary policy as the economy started to show signs of a slowdown. Such restrictive measures would have hurt the economic growth with borrowing conditions rising, GDP and Labour market slowing down and Federal Budget and Trade balance widening negative double-gap. The US dollar supposed to strengthen in such conditions as US Treasuries would have become more attractive for international investors with yields rising due to the Fed’s hikes. However, the currency market’s reaction was completely opposite and traders were massively buying put-options for the greenback versus major currencies including Japanese Yen and Euro. The US dollar index accelerated its plunge despite some of its components were diverging with AUD/USD, NZD/USD sliding and USD/CAD climbing.

The extremely volatile trading session with lots of whipsaws and false movements continued on Thursday when Asian investors realized what Powell made. New Zealand GDP report added oil to the fire, forcing traders to buy put options for NZD/USD with even higher volume. One of the weakest currency pairs was NZD/JPY as Japanese yen was also strengthening on safe-haven flows and Nikkei sell-off. The Bank of Japan did not help. Retail Sales improved in the United Kingdom but GBP/USD was traded on more insertion after Wednesday’s roller coaster. The Bank of England was also ignored and call-options for GBP/USD were in demand.

Friday continued the turmoil in the financial markets as options for US equities were trying to recover some of the previous losses. However, the US government shutdown news forced traders to forget about any positive news before the Christmas and equities were hammered by the heaviest selling pressure recently. The US dollar performed a dramatic U-turn on risk aversion sentiment and take-profit flows. Binary options for EUR/USD were trading in the completely opposite direction with significant put-options dominance. The pair slipped below 1.1400 support, finishing the crazy trading week at 1.1367 and erasing most of its previous gains in one single day.

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